January 28, 2002

The Honorable Mayor and Members of the City Council:

Each year the City Manager prepares an annual report which is submitted to the City Council in the month of January following the close of the fiscal year. The following report contains information from the various departments which describes their activities for the past year and a financial report which gives an outline of the financial health of the City at the end of calendar Year 2001. The financial statements are unaudited and a more complete, independent audited financial statement will be prepared and submitted to the City Council in the spring. The City Manager’s report contains reports by each department on their activities and statistical data which may be used for comparison purposes. The primary purpose of the annual report is to provide an historical perspective of the city’s operations which may be compared from year to year using the data contained within the report.

The General Fund of the City, the fund that provides all general government services to the community, had a carryover balance at the end of the year of approximately $780,000. This is an excellent financial picture for the City in light of the extraordinary expense incurred due to very heavy snows during 2001 as well as spring flooding resulting from the snowmelt and heavy rains. With the extra demands on services, the carryover was approximately 20% less than it has been in recent years but still reflects a very healthy financial situation for the City. During the year the State Legislature changed the Local Government Aid formula and the property tax structure for the State of Minnesota. The City of Albert Lea was slated to receive a substantial increase in the local government aid with a resulting significant decrease in city property tax for 2002 and beyond. By yearend the financial situation of the State of Minnesota had deteriorated significantly and it appeared that the local government aid promised would be reduced. How this will effect the financial health of the City during 2002 was yet undecided. Fortunately the city government is in a position to ride out the economic downturn.

The City government spent a significant amount of money during the year on infrastructure. More than $5 million was spent on street work in the community. This allowed for major reinvestment in residential as well as commercial streets and the construction of new roads to service perimeter growth of the City. The utility system was expanded to accommodate growth and there was major reinvestment to insure its future integrity and reliability. The Waste Treatment Plant saw significant reinvestment to replace aging infrastructure that was experiencing failure due to the harsh environment. The water system was expanded by awarding a contract for the reconstruction of the south water treatment plant which required a significant bond issue. Plans were made and financing arranged for the construction of a new water tower in the northeast area of the city. By yearend the site for the water tower had been acquired and the plans were being prepared for bidding. The new water tower will significantly improve the reliability and quality of the water system in the northeast area of the community. This will provide a water tower in each of the four quadrants of the City as well as the central water tower which provides the bulk of our storage for emergencies.

During the year Home Depot made a decision to locate in Albert Lea and built a significant store. This required the expansion of the street and utility systems to accommodate the growth. During the year Wal-Mart Stores continued to look for a site for a new facility that would double their square footage of retail space in Albert Lea. This site was on the east side of the City near I-35 and they were looking at two locations in that vicinity. The road and utility expansions that were completed during the year will accommodate their location as well.

One major area that will need to be looked at in the future is the development of a new library. The current library is rapidly becoming too small to accommodate the activities of the department. Circulation has increased dramatically over the last six years. 2001 saw total circulation, not counting internet use, of approximately 390,000 units. The City of Albert Lea’s library is open more hours than any other library in the region, has the highest circulation in the region and the fewest number of employees. This high level of demand, coupled with extremely high efficiency, makes our library an excellent example of how to provide services to the public in a very

desirable and low cost way. Unfortunately, our space needs are the direct result of our success and we will need to look at additional facilities in the future.

As reflected in the Police Department’s report this year, the crime rate in the City is down significantly. We continue to expand the quality of our licensed personnel with greater diversity into areas of need. By year end we were taking steps to provide for canine patrol, recommitted to the Drug Task Force and are providing Police School Liaison services to both the high school and the junior high school. The significant decrease in crime cannot be connected alone to the police staffing but it does reflect positively on our department.

During 2001 the Farmland Foods plant was destroyed by fire. This is the major source of employment in the community for the past 100 years. At one point during the fire the City had over 200 firefighters on the scene. Backup fire departments from as far away as Wells, Waseca, and Austin responded to our call. The manner in which the fire was handled reflects very highly on the City’s Fire Department and its fire personnel. From the Chief down through the ranks of the personnel to the volunteers from other departments that responded, we were able to contain the fire, keep it from becoming a major hazard to the community, minimize chemical contamination problems, and no one was seriously injured. Several of the firefighters were overcome by heat and smoke which reflected their dedication to fighting the fire under extremely hot conditions and adverse winds. The community is very fortunate to have such dedicated personnel, both as paid firefighters and volunteers.

The effects of the fire at Farmland carried through the balance of the year. Because Farmland was our largest water and sewer customer, the sewer fund and the water fund experienced losses. The sewer fund lost $69,000 for the year and the water fund lost $8,000. These figures reflect a half year of lost production. During 2002 the losses will be expanded to reflect a full year of lost revenue. We will have to keep a close eye on the situation and possibly look at a rate increase if it appears that there won’t be sufficient growth in other industries to make up the difference.

The Housing & Redevelopment Authority is experienced difficulty in its daily operations during 2001. There were a number of reasons for the problems with the primary one being the aging of the Authority’s housing stock. Most of the units were built in the 1970’s, including the Highrise, and have now reached the point where each tenant turnover creates a longer delay due to more extensive renovation. The housing units themselves were showing their age and required considerably more attention. All of this has resulted in a higher vacancy rate and a slower unit turnover rate than what we would like to see. In addition, the Section 8 program experienced problems with the basic rent structure in the community. The maximum rent allowable under the Section 8 program was somewhat below the market average for Albert Lea. This meant that certificate holders were having problems finding units to rent that were within the rent guidelines set up by the Department of Housing and Urban Development. This structural problem will have to be addressed during 2002 in order to bring the Section 8 program into a use status that will allow us to preserve the number of certificates we have been authorized by the federal government.

A third problem area for the Housing Authority was the Highrise. The greater number of special need tenants meant that we had more demand put on both our maintenance staff and administrative personnel. This trend will continue into the future because of current federal law. The trend will have a negative impact on the overall success of the elderly highrise as a housing source.

During 2002 discussions need to be held by the City Council to consider the structural problems of the Authority. We need to look at alternatives that will allow us to provide our basic housing service in the most efficient way possible and to maintain the success of the institution. This matter will be brought to the Housing Authority Board and then to the City Council for discussions early in 2002. The timeline for arriving at a plan for dealing with the problems must be reached well before the end of the year.

During the past year I have enjoyed working with the City Council and City Employees. I believe the activities of the various departments reflect the high quality of our personnel. I am proud of the performance of the city

operation and our employees. I want to express my appreciation to the Mayor and City Council and the employees for their continued support.

Respectfully submitted,

Paul T. Sparks

City Manager